Daily Outlook The markets will continue to absorb the US jobs data released last Friday and the aftermath of the sell-off in markets related to China and the yuan exchange rate. The PBOC kept the yuan s onshore reference rate steady for the second day in a row overnight in an attempt to stabilize local markets, but there is still a sense of risk aversion which is maintaining pressure on Asian equities and firmness in the JPY. This is in spite of strong US jobs growth of 292k in December, which would ordinarily underpin the USD. Chinese concerns may persist until or beyond the release of Chinese GDP data on January 19 th, and with Chinese PPI dropping 5.9% y/y in December, and CPI only inching higher to a 1.6% y/y these are perhaps other factors keeping sentiment wary. Daily 11 January 2016 Saudi Aramco, which controls 10% of the world s oil production, confirmed over the weekend that it is considering options for an IPO. Given its size (conservatively valued at USD 2.5-5.0 tn) Aramco is also considering an IPO of just its refining subsidiaries. We see the discussion around the potential privatization of one of the kingdom s crown jewels as a positive signal about the government s willingness to move forward with economic reforms, and also highlights the substantial funds that could be unlocked through privatization of state assets across many sectors in the kingdom. The authorities have announced that airports and airport services companies will be privatized this year, with the proceeds used to finance the budget deficit. Dubai s real GDP grew 4.6% y/y in H1 2015, up from 4.0% growth in H1 2014 according to official data. Wholesale & retail trade, the biggest sector in Dubai, grew 5.3% in H1, while transport, storage and communication expanded 6.6%. PMI data points to slower growth in H2 2015 as a strong USD and greater uncertainty about the economic outlook weighed on the services sector, but overall we still estimate Dubai s economy grew around 4.0% last year, in line with overall UAE GDP growth. US payrolls surpass expectations in December Tim Fox Chief Economist & Head of Research 971 4 230 7800 timothyf@emiratesnbd.com Khatija Haque Head of MENA Research 971 4 230 7803 Anita Yadav Head of Fixed Income Research +9714 230 7630 anitay@emiratesnbd.com 450 400 350 300 250 200 150 100 50 US non-farm payrolls (000's) 0 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Source: Bloomberg, Emirates NBD Research Day s Economic Data and Events Time Cons Time Cons Canada Housing starts 17.15 200k FED s Lockhart Speaks 21.40 N/A BOC Outlook 19.30 Source: Bloomberg
Fixed Income Solid US payroll data merely caused a short lived spike in UST yields before prevalent risk aversion took hold. Safe haven bid saw yields on benchmark sovereign bonds decline across the developed world. 10yr UST yields closed at 2.12% on Friday, down 12bps on the week. Against this backdrop, however, average yields on GCC bonds actually increased as oil prices touched 13 year low last week. As has been the case since beginning of the oil rout, SA and Bahraini bonds continued to be underperformers in the GCC bond space. In the last one year, average credits spreads in SA have widened by circa 130 bps, much in sync with 113bps increase in CDS levels on SA government from 70bps to 183bps. Primary market has Emirate of Sharjah (A/stable, A3/stable) marketing a benchmark sized Reg S sukuk. SHARSK 24s are currently trading at yield of 3.75%. While we expect investors to demand some new issue premium, the deal is likely to be well received in view of Sharjah s well diversified economy, low debt levels and low co-relation with oil prices. Equities Asian equity markets have opened lower this morning tracking weak close to developed markets over the weekend. The MSCI Asia Pacific index excluding Japan was trading -0.9% at the time of this writing. Regional equity markets continued to drift lower with the Tadawul (-2.2%) leading the decline. Almarai dropped -10.0% after the company informed that utility price increases and restrictions on new-crop growing would increase its costs by SAR 500mn in 2016. Elsewhere, the Qatar Exchange dropped -1.0% on the back of weakness in Gulf International Services (-2.1%) and Masraf Al Rayan (-1.4%) FX Friday s strong NFP results (see above) helped the USD end the week stronger against most other majors, the exception being the JPY. The JPY, supported by safe haven bid as investors positioned themselves during this time of market volatility, gained on all five trading days last week. This morning, despite initially gaining when the markets opened, the JPY is now softer against most other majors, likely due to profit taking following last week s rally. Thus far in the quiet Asian trading sessions (Japan is on holiday), the JPY opened at 117.26 before quickly falling to 116.70 and then recovering to 117.36. Commodities Oil markets have had a rough start to 2016, ending the first full week of the year down over 10% for both WTI and Brent futures. Sentiment as measured via Commitment of Traders' positions remains extremely negative and options market indicators suggests more downside is coming as volumes in puts at USD 30/b and below is increasing. Saudi Aramco has confirmed reports that it is considering an IPO which would far and away value it as the world's largest oil company. We doubt an IPO would occur in the immediate future and the focus may be on Aramco's downstream sector, where additional investments are planned. Page 2
Markets in Charts Global Bond Yields 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 10y UST 10y Bunds 10y Gilts % Change in Majors vs USD (24 hours) EUR -0.09 GBP -0.69 CHF -0.17 JPY 0.36 CAD -0.40 AUD -0.84 NZD -1.24-1.50-1.00-0.50 0.00 0.50 UAE Liquid Bond Index 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 220 200 180 160 140 120 2.0 100 Jul-15 Aug-15 Oct-15 Nov-15 Jan-16 Yield to Worst (%, bid) Option Adjusted Spread (rhs, bid, bps) Global Equity Indices MICEX 0.0% Bovespa -0.2% Nifty 0.4% Shanghai 2.0% Stoxx 600-1.5% Nikkei -0.4% Cac 40-1.6% Dax -1.3% FTSE 100-0.7% S&P 500-1.1% -2% -1% 0% 1% 2% 3% MENA Equity Indices Madex -0.2% Qatar Ex -1.0% Muscat 0.0% Bahrain Bourse -0.7% KWSE -1.0% EGX -2.0% Borsa Istanbul -1.2% Tadawul -2.2% ADX 0.2% DFM -0.1% -3% -2% -1% 0% 1% Commodities 80 1400 1300 60 1200 40 1100 20 1000 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 ICE Brent Futures (USD/b)(LHS) Gold (USD/troy oz)(rhs) Source: Bloomberg, Emirates NBD Research Page 3
Currencies Close %1D chg 1 yr fwd Close %1D chg Close %1D chg EURUSD 1.0922-0.09 1.1065 USDTRY 3.0201 +0.70 EURAED 4.0130-0.07 GBPUSD 1.4518-0.47 1.4551 USDEGP 7.8300 +0.08 GBPAED 5.3326-0.68 USDJPY 117.26-0.35 115.78 USDSAR 3.7558-0.08 JPYAED 0.0313 +0.34 USDCAD 1.4172 +0.40 1.4133 USDQAR 3.6414 +0.00 CADAED 2.5917-0.40 AUDUSD 0.6953-0.84 0.6849 USDKWD 0.3040-0.02 AUDAED 2.5533-0.86 USDCHF 0.9948 +0.15 0.9756 USDBHD 0.3772 +0.05 CHFAED 3.6904-0.21 EURGBP 0.7526 +0.64 0.7607 USDOMR 0.3850 +0.01 TRYAED 1.2162-0.70 USDAED 3.6730 -- 3.7055 USDINR 60.7700-0.55 INRAED 0.0549 +0.08 Rates Interbank 1 mo 3 mo 6 mo 1 yr Swaps Close 1D chg (bps) EIBOR 0.6300 1.0491 1.2286 1.5229 USD 2 yr 1.020-2 USD LIBOR 0.4238 0.6211 0.8508 1.1551 USD 5 yr 1.501-5 GBP LIBOR 0.5116 0.5894 0.7503 1.0440 USD 10 yr 1.983-6 EURIBOR 0.0880 0.1970 0.2970 0.4770 EUR 2 yr -0.075-0 JPY LIBOR 0.0486 0.0814 0.1150 0.2221 EUR 5 yr 0.234-1 CHF LIBOR -0.7900-0.7510-0.6830-0.6036 EUR 10 yr 0.872-2 Commodities & Fixed Income Commodities Close %1D chg Bonds/Sukuk YTM 1D chg (bps) CDS Close 1D chg (bps) Gold 1104.15-0.43 ADGB 6.75 19 #N/A #VALUE! Abu Dhabi 111 +5 Silver 13.94-2.59 DUGB 7.75 20 3.21 +5 Dubai 268 Oil (WTI) 33.16-0.33 QATAR 6.55 19 2.19-2 Qatar 106 Aluminium 1487.00 +1.17 US Tsy 2 yr 0.93-2 Saudi Arabia 183-8 Copper 4482.50-0.92 US Tsy 10 yr 2.12-3 Bahrain 386 +5 Source: Bloomberg, Emirates NBD Research Page 4
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Emirates NBD Research & Treasury Contact List Emirates NBD Head Office 12thFloor Baniyas Road, Deira P.OBox777 Dubai Aazar Ali Khwaja Group Treasurer & EVP Global Markets & Treasury +971 4 609 3000 aazark@emiratesnbd.com Tim Fox Head of Research & Chief Economist +9714 230 7800 timothyf@emiratesnbd.com Research Khatija Haque Head of MENA Research +9714 230 7803 khatijah@emiratesnbd.com Jean Paul Pigat Senior Economist +9714 230 7807 jeanp@emiratesnbd.com Aditya Pugalia Analyst +9714 230 7802 adityap@emiratesnbd.com Anita Yadav Head of Fixed Income Research +9714 230 7630 anitay@emiratesnbd.com Athanasios Tsetsonis Sector Economist +9714 230 7629 athanasiost@emiratesnbd.com Edward Bell Commodity Analyst +9714 230 7701 edwardpb@emiratesnbd.com Mohammed Al-Tajir Analyst +9714 609 3005 mohammedtaj@emiratesnbd.com Sales & Structuring Group Head Treasury Sales Tariq Chaudhary +971 4 230 7777 tariqmc@emiratesnbd.com London Sales James Symington +44 (0) 20 7838 2240 jamess@emiratesnbd.com Shady Shaher Elborno Head of Macro Strategy +9714 2012300 shadyb@emiratesnbd.com Saudi Arabia Sales Numair Attiyah +966 11 282 5656 numaira@emiratesnbd.com Egypt Gary Boon +20 22 726 5040 garyboon@emiratesnbd.com Singapore Sales Supriyakumar Sakhalkar +65 65785 627 supriyakumars@emiratesnbd.com Group Corporate Affairs Ibrahim Sowaidan +9714 609 4113 ibrahims@emiratesnbd.com Claire Andrea +9714 609 4143 clairea@emiratesnbd.com Investor Relations Patrick Clerkin +9714 230 7805 patricke@emiratesnbd.com Page 6